Shocks and coffee : lessons from Nicaragua

Using household level panel data from Nicaragua, this paper explores the impact of the recent coffee crisis on rural households engaged in coffee production, and coffee labor work. Taking advantage of the panel structure of the data, a number of findings emerge: a) while overall growth between 1998, and 2001 was widespread in rural Nicaragua, coffee households saw large declines in various socioeconomic outcomes; b) among coffee households, it is small farm households that were affected the most, and not poor labor households as previously expected; c) even though coffee households used various risk management strategies to address the shock, it was pre shock, ex-ante strategies (like income diversification) that were the most effective in allowing coffee households insulate against the shock. By contrast, the coffee households that used ex-post coping instruments, did not manage to mitigate the adverse impact as well, with additional potential long run implications via extensive uses of harmful coping strategies (like increases in child labor); and, d) the coffee shock affected upward mobility, and downward poverty vulnerability of coffee households. Such findings seem to confirm the widespread impact of shocks on overall household behavior, and indicate the importance of incorporating risk management in the policy agenda of poverty reduction.